No Sign of This Bubble Bursting!
Interest rates have remained unchanged since May 2015 (when rates were reduced 25 basis point) and the cash rate has been left at a record low 2 percent. Similarly, it has been more than 5 years since interest rates were last raised by 25 basis points, but economists are still predicting that interest rates could still stand to be cut even lower, to 1.75 percent sometime during the second half of this year.
This comes even despite rampant speculation that Australia’s property market was going to crash, resulting in an across the board depression of housing prices by between 30 and 50 percent.
Interest Rates Could Well Go Even Lower
Historically, low interest rates have fuelled a boom in the property market, so if a housing bubble really was on the horizon, it’s unlikely that the RBA would have left interest rates unchanged — never mind a possible cut in interest rates later this year.
Of course, depending on the outcome of the next federal election and what happens with negative gearing, there could still be a mini boom in the property market as investors try to beat what could be a July 2017 deadline for negative gearing changes.
For the most part, though, property prices have been declining, even despite record-low interest rates. According to research firm CoreLogic, property prices have declined in the last quarter, with the CoreLogic Home Value Index down to 7.6 percent, from 11.1 percent (although growth 0.5 percent was recorded in all capital cities in February).
It’s Not the Property Market that’s Influencing Interest Rates
But the property market and it’s declining property values didn’t play a big role in the RBA’s decision to leave interest rates unchanged. It’s Australia’s growing rate of unemployment (up 0.2 percent this quarter), inflation and the rising Australian dollar, which peaked at an eight-month high in March. If the dollar continues its upward trend well above US70 cents — the RBA would like to see the dollar trading at around US68 cents — then it may well lower interest rates below 2 percent.
So what does all this mean for people trying to determine whether they should sell their home now or wait? It depends on your local area and how the market is performing there. You also need to consider your motivations and goals for selling (discussed in our Selling Your Home guide), and whether the local market conditions are favourable to you. You should also consider the following key points:
- Any changes to negative gearing will only affect property investors buying already established property that’s unlikely to yield a positive rental return
- Our record-low interest rates will continue to draw buyers to the market.
If you would like to learn more about selling property, subscribe to our website to receive access to our free guide, What You Really Need to Know About Selling Your Property. Alternatively, for more news and analysis about the property market, continue reading our blog.
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